Franchise businesses offer lower risks and added support. It’s no wonder why many people consider buying one to get into the business industry. With thousands of franchises available, how can you decide which franchise is the best for you?
Even though buying a franchise gives you the benefit of a proven product and system, you still need to put in the effort. When choosing a franchise, there are many things to consider, like applying for franchise business loans and more. To help you choose the best franchise, here are six helpful tips you should remember.
1. Research, Research, and Research Again
As mentioned, there are thousands of franchises from various industries. It’s important to assess yourself to determine which franchise is best suited for your skills and passion. Once you know what you want, the next step is to research different options. It’s best to visit as many franchise locations as you can. In this way, you’ll be able to see if there is a void in the marketplace and you can think of ways on how to address it.
Next is to browse the web to see which franchise business is a good fit for your community. For instance, if your neighborhood has many car-wash spots but none offers complete auto-detailing, you might want to auto detailing and car wash franchises within your budget.
2. Ask About Franchisor Experience
Whether it’s a franchise or a startup, starting a business is costly. One way to protect your investment is to work with experienced and reputable franchisors. Before you sign the contract, make sure to ask the franchisor about past industry experience.
You should look for a franchise that has at least one corporate store that has seen a success that can be copied. If not, see if the founders have had experience in running a franchise business.
3. Closely Examine the Franchise Disclosure Document
The first thing you should look at in the franchise disclosure document (FDD) is the cost of the franchise. If you can see the amount, make sure to check out the financial fortunes representation portion for the document. It’s best to have a financial advisor check the FDD with you to determine the profit you can make on average.
Another important factor you should look at is the post-termination clause. Exit strategies are an important part of the contract to protect you if you choose to disembark from the franchise. Many business owners sell their franchise because of personal issues, retirement, or new opportunities. In any case, make sure that the franchisor offers a favorable exit strategy.
4. Get in Touch with Other Franchisees
The best way to get to know a franchise is to ask other franchisees. When asking about their experience in running the franchise, make sure to weigh the good and the bad. Additionally, ask a large sample size before coming to a conclusion about the franchise.
If a franchisee says they’re having a hard time turning a profit, make sure it isn’t because of poor customer service or an untidy space. By talking to multiple franchisees, you’ll have a clear picture of the franchise as a whole.
5. Be Financially Ready
The best franchise business is the one you can afford. It’s easy to get caught up with the excitement of starting a franchise business. But if you aren’t careful, you can easily forget the additional expenses that come with it. Many franchisees overlook the rental deposits, as well as the amount of working capital needed.
Cash flow gaps happen all the time when you’re running a business. You need to ensure that during this time, you have sufficient working capital to sustain losses and to cover day-to-day expenses, like labor, supplies, and rent. Don’t forget to include taxes, such as the value-added tax (VAT) which you need to pay whether your business is profitable or not.
6. Don’t Choose a Franchise Based on Fads
It’s tempting to jump on the bandwagon when we hear franchise business owners recover their investment within just a few months. Unfortunately, fads come and go, and by the time you operate your franchise, the buzz has died down and you may be unable to recover your investment. Don’t get caught up with the hot and trendy franchises! Make sure to pick a franchise that will last for years to come.
Fund Your Franchise Business with Franchise Business Loans
Running a franchise is not a walk in the park, even if you have the support of the owners. To ensure that your business remains stable, you might want to consider applying for franchise business loans.